Monday, June 21, 2010

More on Cap-and-Trade

Given the unemployment rate and the awful domestic and international government budget situations, it becomes particularly salient to point out that no country has ever thrived economically on restricted energy demand. In fact, one reason why the US manufacturing base could grow so much more than similarly developed countries over the 50s+ is that the US had much cheaper energy than everyone else and they could supply it themselves for a long time (this is, of course, only one factor among many). Electricity usage is often used to measure the accuracy of government headline growth numbers, because a lot of second and third world countries (USSR and China the largest among them) just lie about their GDP numbers, and electricity usage correlates almost one-to-one with growth and is harder to fake.
Greater efficiency of energy use is a good thing, and there's definitely a lot of low-hanging fruit, but it's not enough - either you have to restrict yourself economically (very bad for jobs, international security, etc) or you have to develop an alternative that is cost-competitive with fossil fuels without subsidy. If you start curbing productive emissions before there's a replacement ready, you may actually stymie long term efforts because it's hard to justify pouring money into R&D when nobody has a job, even if that's the economically optimal outcome on a societal level. What I'm saying is that whatever demand-side improvements you'd like to see, the big step has to be on the supply side, and that's not perfectly stimulated by demand-side reforms like cap-and-trade.
Given that, what you'd ideally want to see is a high cap (perhaps only 5% or 10% less than what we emit right now) that's reduced over time (so corporations see value in improving efficiency but productive emissions keep going). This has the potential to be a logistical nightmare, so there needs to be a method of measurement that's not SarbOx-style costly for small businesses. If there's no logistical mechanism to spare small businesses, then you need to restrict your carbon taxation/cap to large companies only. It also needs to be able to assess imports. You're still going to lose some jobs to locales without carbon taxation overseas (largely in export-driven industries), but it's almost unavoidable if you're capping anything at all (if there are better ways to spur energy efficiency, let me know, because it seems that improving low-hanging fruit-style energy usage consists of projects that are either a) not efficient from a project-cost or management-time perspective or b) subject to significant institutional inertia or lack of focus).
This needs to be accompanied by a lot of spending quickly on things like a smart grid and R&D tax credits (which are actuallly getting eliminated as part of the expiration of the Bush tax cuts) and subsidies to gas stations to put in battery charging stations/hydrogen tanks/natural gas tanks. It's funny that we're spending so much on genuinely atrocious and unproductive stimulus when we actually have a bunch of useful stimulus right in front of us.
I'm actually a really big fan of the Pickens plan - take the natural gas we use in electricity and shift it to fueling the car fleet, and replace that electricity production with wind. Both wind and solar will require a lot of grid upgrades to be viable but grid work is textbook "good" government spending on a legitimate public good.
The pity politically is that the climate-change activists keep framing this in terms of climate change. Whether or not you think climate change can be averted by US climate action (Although we certainly have to try, I reserve judgment on that, because we're not the only country of interest here), reducing oil imports at the very least would have substantial security benefits and economic currency/trade deficit and indirect budget deficit benefits, and reducing oil imports and reducing carbon emissions necessarily have to go hand-in-hand. The downside of not acting is way worse than the downside of acting, but by framing this as an environment issue instead of a "this is how we fight Chinese currency dominance and save our jobs!" issue or a "this is how we stop financing terrorism" issue or something along the lines, you're gonna have the same hackneyed crap coming out of both parties. You're also much more likely to get Republicans on board if you acknowledge that natural gas (lower emissions per energy unit than coal or oil) has to be part of the solution, and that a lot of major oil-producing states are going to benefit from wind power (which is what makes the Pickens plan so beautiful politically, if it were framed correctly).

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